So I just chaired a panel discussion at Eurofinance 2014. There were six statements made during the panel which I wanted to discuss on stage but, being the moderator, I couldn’t really say: “what you just said is complete balderdash my friend” (I could, but it wouldn't have been appropriate). So luckily I blog and therefore I can say it here. There are six statements made by this panel that I completely disagree with (almost):
1. The global universal banking model is alive and well
No it is not. The global universal banking model is the one that created too big to fail and is being broken apart by regulators. Separation of retail and investment banking, closure of proprietary trading desks and sale of non-core assets has made the big, universal banks a shadow of their former sales. Since 2008, trillions of dollars of bank pieces have been stripped and sold. In Europe alone, these were worth $2.75 trillion (that’s bigger than JPMorgan) and more is to come.
In particular, I ask the question: what is global?
It’s hard to define, but I tend to call it where the bank has an actual presence locally, rather than via a counterparty, and should cover the prime markets. So when the crisis hit, the largest global pretenders had operations in how many countries?
Five years later and the big banks have scaled back somewhat:
- Citi: 71 (and recently decimated its retail bank operations)
- HSBC: 74
- Deutsche: 72
- Bank of America: 40
Please note, there are lies, darned lies and statistics
What they have actually been doing is leaving their corporate tracks in play, whilst closing consumer operations and others. For example, HSBC has sold its retail bank business in Poland, but left its shared service centre and corporate facilities.
In other words, banks need to serve global corporations by having global coverage, but they are no longer trying to be all things to all people in all countries. As the panel concluded, you need to have global reach via technologies and counterparties with local knowledge in the markets of most criticality. However, you are no longer a global, universal bank.
2. Technology is only changing things for consumers
Whoa, that’s an interesting view. Yes, it’s changing things for consumers radically but, as a result, consumer-focused corporations are being pushed hard to provide financial services integrated into those technologies as the B2C relationship changes the B2B back-end. It’s changing supply chains and structures too. For example, Salesforce is a cloud-based system that changed everything in how we think about software in the B2B space. No more expensive upgrades – just get it through the cloud. So I think saying technology only changes consumer focused markets is a bit contentious to say the least. Then the panellist went on to say:
3. Technology isn’t changing anything for corporate to bank operations
Now here this is really contentious as I would say that cloud, big data, APIs and apps are changing things for corporates. You only need to look at how Deutsche Bank’s Autobahn or Citi and PayPal’s APIs are creating new models and structures for corporate transaction processing to see the world is changing through technology in the corporate to bank space. To say there’s no big change in the needs of corporates and that technology is not changing those needs is clap-trap to honest. After all, as Dell takes payments in bitcoin and Marc Andreessen announces that he wants to destroy banking as it is today, means that you’re an ostrich if you don’t wake up and shake up.
4. You’re naïve if you think the banking system will be destroyed
I agree, but that doesn’t mean people aren’t trying to destroy it. That’s what the whole bitcoin thing is all about: to create a democratised planet where value can be traded without friction through the net. In fact, it is quite clear that technology will hurt the industry, but it won’t destroy it. That's mainly because of all of the regulatory barriers that protect the industry. But you’re naïve if you don’t watch the things that are trying to destroy the banking system.
5. Cryptocurrencies may be interesting sometime, but not today
Oh no. When something becomes a destructive force of change, by the time you see it, it’s often too late. You only see it because it has become a destructive force of change. That’s why you noticed it. It’s the old Innovator’s Dilemma thing: by the time you see the need to change, it is often too late. To specifically quote Mr. Andreessen (who I am watching like a hawk because he is trying to destroy the financial system): “we can re-implement the entire financial system as a distributed system as opposed to a centralised” one using cryptocurrencies. That is the aim of the cryptocurrency thing and if you don’t think it’s interesting today, then you really are an ostrich with your head in the sand.
6. Banks are ostriches with their heads in the sand
Finally, something I can agree with … well no. Some banks and bankers have their heads in the sand – specifically the one who made the five statements above.